t auctions. A branch of price discrimination, second degree is the practice of selling incremental amounts of a good for incremental prices. For example, the first 12 pairs of shoes are $80, the next 12 pair are $72, and so on. The 2nd degree often allows the firm to sell more quantity than they would ordinarily. Customers with higher demand prices will tend to buy smaller quantities at higher average unit prices, while those with lower demand prices will more often purchase the larger quantities at a lower unit cost. Second degree price discrimination generally leads to a situation where more quantity per unit is sold. Sam's Club is the 2nd degree price discrimination heaven. Mr. Walton's little warehouses across the land clearly aim for a consumer that is willing to buy more at a lower price per unit. Finally, 2nd degree price discrimination yields itself well to a process called "product bundling". Product bundling is more common in the personal computer industry. System packages are bundled together with the most popular software and hardware, and this reduces possible arguing over certain items. No one can argue about the value of not including a CD-ROM or video card. Third degree price discrimination deals with separating customers into distinct groups based upon their difference in elasticity of demand. Based upon this elasticity, you then charge a higher price to the group whose demand is less elastic. Marginal revenue is the change in the total revenue that is the result of a small change in the sales of the good in question. Therefore, price must also have to change slightly. Opportunity Cost Price discrimination is based upon the most significant of all economic concepts: opportunity cost. For example, American Airlines may offer college students a fare from Saint Louis to Chicago for $149 round-trip, while "business class" fares run significantly higher, say $279 for example. The business traveler, is more willing to pay th...
